6/22/2011 @ 6:00PM

Enrique Razon's Shipping Play

Enrique K. Razon Jr. is on a buying spree, and he doesn’t mind paying up to get what he wants. In the last few years that’s meant port operations in a string of mostly emerging markets much like his home base in Manila.

Already this year his International Container Terminal Service (ICTSI) has bought controlling stakes in two terminal ports, one in India’s Tamil Nadu and one in Croatia. In June, through an ICTSI subsidiary, he began offering a 69% premium for shares in midsize Singaporean port manager Portek International, which has concessions in Jakarta and West Java, Algeria, Gabon and Malta. So far Razon has a 17% stake and apparently wants control. “Portek owns several small- and medium-size ports, which are exactly the kind of ports that ICTSI is interested in,” he says.

“Ricky” Razon, as he is known in Philippine business circles, has spent his whole life there. Yet he casts a European air; his voice, husky from smoking, hints of a Spanish accent. His grandfather arrived from Spain in the early 20th century to establish Manila’s main port in South Harbor.

Having that first Enrique Razon (Ricky’s father also carries that first name) see the business through rough formative years that included World War II gave the grandson, now 51, a beachhead. But the latest Razon has had to withstand his own storms to make ICTSI a rare Filipino global company. In turn, the particular strength of late in trade from emerging markets has let the terminal business help propel Razon into the ranks of billionaires.

Volume at Port of Manila, ICTSI’s flagship, surged 15% to 1.6 million TEUs (a standard container unit) in 2010. This is still far below Shanghai International, the world’s busiest port with 29.1 million TEUs last year (16% growth). But ICTSI also oversees or manages other container ports in the Philippines and in 16 other countries. The group in all boosted volume 18% to 4.2 million TEUs last year. In the Philippines its main competitor, Asian Terminals–recently bought by giant DP World of Dubai–handles only 820,000 TEUs.

From Manila to Madagascar, ICTSI’s revenues have been outpacing its volume growth–sales were up 28%, to $155 million, for the first quarter ending in March; net income was $28.5 million.

Concessionaires like ICTSI, usually with long contracts, outfit the ports to handle shipments and offer related services such as inspection and storage. “The business now is very professional, with information systems and modern equipment,” says Razon.

Taking charge of ICTSI’s operations at age 27, Razon in 1987 sensed this was something he could take abroad. The bent had only increased by the time he ascended to the chairmanship at his father’s death in 1995.

Ricky is the youngest of five children but the only one, he says, with a deep interest in ports. By the time he became an executive, he’d spent nine years loading ships and operating the cranes. He had dropped out of university in Manila, thinking that was of no use at the docks. “I learned the business from the ground up–or rather, from the water.”

In his headquarters office by the busy Manila cranes–the modern port is adjacent to one of the biggest slums in the country–Razon explains why he wants ports in emerging markets. “That is where most of the growth is,” he says.

“The terminals are more under the government ownership [relying on private companies to lend operational expertise], and we have higher growth, higher margin. If you go to the markets like Italy, France … labor cost is just too high, and even though you have a lot of volume, margin is simply too low. … We could be in any place in the world … but we stay away from these markets because they don’t have growth.”

Even as privatizations in the Philippines in the early 1990s were helping to revive business there, young Razon embarked on the first wave of globalizing. ICTSI came to Argentina in 1994, followed by other ports in Mexico, Tanzania, Thailand and Pakistan. Most of his early investments were joint ventures, which, Razon later realized, didn’t offer enough investment and management leeway. But he soon had a bigger problem: the Asian financial crisis and a halving of the Philippine peso’s value, which overnight blew out the company’s debt to $320 million. Razon was forced to dispose of overseas port assets–he sold nearly all to the giant port manager Hutchison, owned by Hong Kong tycoon Li Ka-shing.

“It made no sense to work year after year for the banks,” Razon observes. The cash from the sales covered the debt and allowed ICTSI to start over. But at a cost: Hutchison remains a fierce competitor in these emerging markets.

Razon was soon back to building out from bases in Brazil and Poland. This time he would only go for clear control of port operations. The subsequent expansion, reaching from Asia to Argentina to Syria, gained momentum in 2010 when ICTSI bought container terminals in Manzanillo, Mexico and Portland, Oregon. Oregon is not an emerging market, but it allows ICTSI to develop the transpacific trade going to Canada. At Manzanillo, Mexico’s largest Pacific seaport, ICTSI has drawn up a $550 million investment plan. That operation should reach 1.7 million TEUs annually by the time construction is completed.

In 2011 ICTSI has added ports in India (Tamil Nadu) and Croatia (Rejika). The latter already gave a boost to the firm’s first-quarter earnings, according to analysts at Philippine Equity Partners.

Volume at several of the emerging markets is growing at double the company’s overall pace. No wonder ICTSI is facing steepened competition there from rivals including Hutchison, DP World and Port of Singapore Authority.

A $200 million note offering in April has given ICTSI new working capital. Razon says it often bids higher and then “works harder” to earn it back over contracts of two to ten years. “Some can make money back in six months,” said Christian Gonzalez, Razon’s 36-year-old nephew and general manager of the also expanding Manila terminal.

Gonzalez is the only other family member in the business. His role may grow as Razon has started putting his money into other businesses.

Said to be close to past president Gloria Arroyo, Razon in late 2008 bought 30% of National Grid Corp. of the Philippines, then sold it to countryman Henry Sy Jr.–making $400 million in 15 months, according to one insider. Razon also has a property firm, Sureste, and now a big casino project (see box).

“Money is not the objective,” Razon says of his efforts generally. “The objective is to build a global business. Without money, you can’t build it.”

His drive doesn’t end with business. To an “addiction” to golf, he has added kite surfing. “Anything I do, there has to be some competition involved,” Razon says. “If not, it is not worth doing.”

Roll the Dice

Asia is becoming the heart of global gambling, and the Philippines wants to be a part of the game. Four casino licenses have been granted in the country, and Enrique Razon Jr. has one. His private company, Bloomberry, has put $350 million into a hotel complex in Manila’s Bagong Nayong Pilipino Entertainment City.

He will have to invest $200 million more in the first phase of the project, which is expected to be finished by the end of 2012. This would put him in direct competition with fellow billionaires Andrew Tan, whose joint venture with Genting Hong Kong opened the country’s first casino last year, and Henry Sy, whose Belle Corp. aims to open its $350 million casino complex by year’s end.

Razon, who claims he has been to all major casinos in the world but never gambled, says the “competition is good for the business.” The Philippines, in turn, is competing with neighboring Singapore, Malaysia, Vietnam and Cambodia. Singapore’s handle is reported to now be exceeding Las Vegas’ and trailing only another regional hot spot, Macau. (CLSA brokerage in Hong Kong argues the Lion City has the edge in Southeast Asia because of “robust” regulation and plush digs.)

Razon thinks the number of mainland Chinese in the market for this entertainment could exceed the population of the Philippines (100 million). And his nation, with thousands of small islands, has a bit of everything to offer. “Right now a majority go to Macau, some go to Singapore. But we feel there is more to do here: a bigger country, golf courses; a lot more, not just gambling.”